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ERISA Fiduciaries Must Monitor Retirement Plan Investments

The United States Supreme Court has issued a reminder to plan fiduciaries responsible for selecting investment options available to participants in employee benefits plans subject to ERISA. Any such fiduciary has an ongoing duty to monitor the total performance of plan investments, and to remove any investments that could reasonably be considered imprudent.

The implication of the Court’s decision in Tibble v. Edison International, No.13-550, is twofold. Plan fiduciaries need to document both the creation and implementation of investment monitoring procedures; for guidance, the Court refers fiduciaries to trust law. Specifically, to succeed against a claim for failing to monitor, fiduciaries need to document the establishment of a reasonable procedure that follows industry standards to monitor the expense ratios and net performance of investment options. Fiduciaries also need to document that the procedure was implemented when monitoring plan investment options. Written evidence of any relevant deliberations should also be kept, including meeting minutes when plan options are discussed.

The original action in the Tibble case was filed in 2007 by a class of participants and beneficiaries in the Edison 401(k) Savings Plan (Plan). The complaint alleged several breaches of fiduciary duty related to the selection, monitoring, and removal of investment options in the Plan. The suit sought damages sustained by the Plan after Edison added six retail mutual fund options in prior years. Similar institutional class funds were simultaneously available, and carried lower administrative fees. The argument at the heart of the claims was that the Plan’s fiduciaries had acted imprudently by selecting the retail version of the funds for inclusion in the plan options rather than their institutional alternatives.

Both the District Court and the Court of Appeals for the Ninth Circuit rejected the suit as untimely, holding that the applicable statute of limitations begins to toll from the date the investment is included in the Plan. Upon review, the Supreme Court rejected the legal finding that imprudent selection of plan investment options are necessarily anchored at the plan-inclusion date for purposes of an ERISA suit. Instead, the Supreme Court held that under trust law, a fiduciary is obligated to regularly review its investments, and this duty is separate from a fiduciary’s duty to exercise prudence in the selection process.

The duty to monitor investments is not new, but this decision erects clear guideposts for plan fiduciaries hoping to avoid successful challenges to the selection and monitoring of plan investments.

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